Senate passes increase to motor and marine fuel taxes; Operating budget moves to the floor of state House

A bill to increase state fuel taxes in Senate Bill 115 passed the state Senate 12 to 5 Monday, March 4, and is now in the state House. Meanwhile, a second tax measure, SB 50, an employment, or “head” tax, is in the Senate Finance Committee and is expected to be on the floor of the Senate soon.

In another development, the state operating budget, in House Bull 205, was on the floor of the state House Monday, March 3, and is expected to pass the body and go the Senate Tuesday or Wednesday. There are no real surprises in the budget compared with what was introduced earlier by Gov. Mike Dunleavy.

Total general fund spending in the operating budget is $1.99 billion in state funds in the version of HB 205 that came from the House Finance Committee, but this does not include money for a Permanent Fund dividend that has yet to be decided on.

In addition, there will be a modest state capital budget mostly to pay the state’s minimum contribution to federal transportation funds for highway and airport work. Most agencies and programs in the operating budget are about on par with current-year spending with the exception of the University of Alaska, which is cut from $302 million in state funds for the current year to $277 million next year. This is part of a multi-year series of $70 million in cuts to the university spread over three years that was agreed on with the governor, who had first proposed a one-year $141 million reduction.

Two upward pressures in the operating budget are debt service and pension costs. Debt service will increase from $149.7 million this year to $192.3 million next year, and pension expenses for retired public employees and teachers will rise from $307.9 million this year to $345.6 million next year.

Sponsored by Sen. Click Bishop, R-Fairbanks, the fuel tax measure in SB 115 would increases the tax rate on highway and marine motor fuels from eight cents to 16 cents, and from five cents gallon to 10 cents per gallon for marine fuel. The two tax increases are estimated to generate approximately $35 million in additional state revenue.

For Anchorage residents the increase would be on top of a combined state and city motor fuel tax that is now 16 cents a gallon and would be increased to 24 cents a gallon. For residents of the Matanuska-Susitna Borough who commute daily to jobs in Anchorage the tax on motor fuel would have an impact.

The state House, controlled by a Democrat-led coalition, is expected to approve at least the motor fuel tax. The uncertainty is whether Gov. Mike Dunleavy would veto it.

In a statement, Bishop said “This is a meaningful step toward funding the state’s backlog of transportation infrastructure and maintenance needs. A modest increase in transportation funding will improve public safety, stimulate economic growth and provide good-paying jobs for Alaskans.”

Bishop said Alaska’s motor fuel tax rates have not changed for 50 years, since May 1970. With this increase, Alaska would still have the lowest marine fuel tax rate in the nation and the ninth lowest highway fuel tax rate.

Alaska’s highway motor fuel tax rate of 8 cents per gallon was close to those of other states when it was enacted in 1970. Since that time, however, every other state has gradually increased motor fuel tax rates while Alaska has remained frozen.

Alaska’s 1970 tax rate, adjusted for inflation, would be roughly 52 cents today, Bishop said, meaning the tax has lost about 85 percent of its purchasing power since 1970. The bill does not propose increases to aviation or jet fuel tax rates because taxes on these fuels currently rans competitively among other states: 40th for aviation fuel and 36th for jet fuel.

House Bill 205 to the floor of the state House, held for final action Tuesday, March 4.